RBI Interest Rate Hike Looms as Fed Raises US Rates

The Reserve Bank of India (RBI) may be close to raising interest rates for the first time in three years, following the Federal Reserve's decision to hike US rates. The Fed's move has sparked calls for RBI to follow suit and tighten monetary policy to maintain a wide yield gap that would attract foreign investments.

Economists expect RBI to increase the local policy rate by 25 basis points at its next review meeting, although some predict a shallow hiking cycle of 50-75 bps. The last time RBI changed the repo rate was in December 2025 when it was reduced by 25 bps to 5.25%.

Recent data shows that India's retail inflation measured by Consumer Price Index has remained above 4% for three consecutive months, exceeding the central target under the RBI's flexible inflation targeting framework. This, combined with rising crude prices and firm domestic growth, strengthens the case for a rate hike in October.